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CIRCULAR No

CIRCULAR No. 78/1998/TT-BTC OF JUNE 9, 1998 STIPULATING REINSURANCE BUSINESS OPERATION

In furtherance of Decree No.100-CP of December 18, 1993 of the Government on the insurance business and Decree No.74-CP of June 14, 1997 of the Government on the amendments and supplements to a number of articles of Decree No.100-CP of December 18, 1993 of the Government on the insurance business; in order to enhance the State management over reinsurance business operation and increase the retention rate on Vietnam's insurance market;

The Ministry of Finance hereby stipulates reinsurance business operation as follows:

I. GENERAL PROVISIONS

1. This Circular shall apply to the Vietnam National Reinsurance Company and insurance enterprises which are lawfully established and operate in Vietnam, in order to regulate reinsurance operation on the basis of reinsurance contracts and reinsurance-ceding contracts.

2. In this Circular, the following definitions shall be understood as follows:

- Insurance enterprises are enterprises licensed to conduct insurance and reinsurance business operation under the specific stipulation in the certificates of full qualifications for insurance business activities granted by the Ministry of Finance.

- Reinsurance business operation includes reinsurance and reinsurance ceding.

- Reinsurance means the reinsurance by an insurance enterprise or the National Reinsurance Company of Vietnam of a part or whole of the risk of another insurance enterprise or a foreign insurance organization.

- Reinsurance ceding means the transfer by an insurance enterprise or the National Reinsurance Company of Vietnam of a part or whole of the reinsured risk to another insurance enterprise or a foreign insurance organization.

- Designated reinsurance means reinsurance activities of an insurance enterprise according to the designation by its clients or persons who offer insurance services to such insurance enterprise.

3. The principles for reinsurance business operation:

- The insurance enterprise is the only organization that takes liability to its clients who participate in the insurance, even in cases where the reinsurance of insured risks is ceded.

- The insurance enterprises and the Vietnam National Reinsurance Company shall have to arrange reinsurance first for insurance enterprises licensed to operate in Vietnam before ceding reinsurance abroad.

II. SPECIFIC PROVISIONS

1. Provisions on compulsory reinsurance:

a/ In cases where they undertake reinsurance for foreign insurance organizations, the insurance enterprises shall have to reinsure part of the liabilities under the original insurance policies or applications to the Vietnam National Reinsurance Company.

b/ The compulsory reinsurance shall be effected as follows:

The compulsory reinsurance rates, the compulsory reinsurance commission rates and the list of compulsory reinsurance operations shall comply with the appendix enclosed with this Circular.

In case of co-insurance, the compulsory reinsurance rate shall be calculated on the insured value for which the concerned insurance enterprise is liable under the original insurance policy or application.

c/ The Vietnam National Reinsurance Company shall have to assume compulsory reinsurance from insurance enterprises with the prescribed minimum rates.

In cases where it can prove that the risk insured by an insurance enterprise is not in conformity with the practices on the international insurance market in terms of insurance clauses, premium levels ..., the Vietnam National Reinsurance Company may refuse to reinsure part or whole of such insured risk.

d/ Before ceding abroad the compulsory reinsurance liability, the Vietnam National Reinsurance Company shall have to cede the reinsurance first to insurance enterprises licensed to operate in Vietnam at the maximum level possible and arrange its reinsurance ceding abroad in the most effective way. In cases of necessity, the Ministry of Finance shall request the Vietnam National Reinsurance Company to prove the ceding of reinsurance of the part of liability it has assumed under such compulsory reinsurance.

e/ The interests and obligations of the Vietnam National Reinsurance Company in respect of each risk assumed under the compulsory reinsurance contracts shall arise and terminate together with the original insurance policies or applications of the insurance enterprises.

f/ The payment of reinsurance premium, reinsurance commission and reinsurance indemnity in relation to the liability arising out of a compulsory reinsurance contract between an insurance enterprise and the Vietnam National Reinsurance Company shall be made quarterly on the basis of the statistical sheet prepared by the original insurance enterprise in accordance with the reinsurance contract.

g/ In cases where it fails to make payment within the above-said time limit, an insurance enterprise or the Vietnam National Reinsurance Company shall have to pay a fine for the period of delayed payment as prescribed by the State Bank of Vietnam.

h/ The insurance enterprises and the Vietnam National Reinsurance Company may agree to include other provisions in the compulsory reinsurance contracts, provided that such provisions are not contrary to the stipulations of this Circular.

2. Provisions on non-compulsory reinsurance:

a/ After undertaking the compulsory reinsurance under the stipulations of this Circular, the insurance enterprises shall have to reinsure first for the insurance enterprises licensed to operate in Vietnam part of the insurance policies on the basis of the financial capability of such insurance enterprises and the mutual interests before making reinsurance abroad.

b/ In cases of designated reinsurance, the insurance enterprises shall have to abide by the following stipulations, unless otherwise permitted by the Ministry of Finance:

- The maximum rate of designated reinsurance prescribed for foreign insurance organizations shall be 50% of the value of the original insurance policy or application (except for cases where the Vietnam National Reinsurance Company refuses to undertake reinsurance as stipulated in Item c, Clause 1 of this Chapter).

- The maximum rate of designated reinsurance prescribed for a single foreign insurance organization shall be 40 % of the value of the original insurance policy or application.

c/ An insurance enterprise shall not be allowed to cede the reinsurance of the whole (100%) of the liability it has insured in an insurance service to another insurance enterprise or an insurance organization abroad (even after its compulsory reinsurance to the Vietnam National Reinsurance Company) to get reinsurance commission.

3. Provisions on the reinsurance acceptance:

The Ministry of Finance encourages insurance enterprises to accept reinsurance from other insurance enterprises or from foreign insurance organizations. Before accepting the reinsurance, an insurance enterprise must carefully assess risks to be reinsured, its own financial capability to indemnify against such risks and take into account the business efficiency of the reinsurance operation.

III. IMPLEMENTATION PROVISIONS

1. This Circular takes effect from July 1st, 1998. All previous stipulations which are contrary to this Circular are now annulled.

2. Any insurance enterprise or the Vietnam National Reinsurance Company that violates provisions of this Circular shall be handled according to the provisions of Clause 10, Article 1 of Decree No.74-CP of June 14, 1997 of the Government on the amendments and supplements to a number of articles of Decree No.100-CP of December 18, 1993 of the Government on the insurance business.

Any problems arising in the course of implementation of this Circular shall be promptly reported by insurance enterprises and the Vietnam National Reinsurance Company to the Ministry of Finance for consideration and appropriate amendments and/or supplements.

For the Minister of Finance

Vice Minister

TRAN VAN TA

APPENDIX

PRESCRIBING THE COMPULSORY REINSURANCE RATES, COMPULSORY REINSURANCE COMMISSION RATES AND THE LIST OF OPERATIONS SUBJECT TO COMPULSORY REINSURANCE

(Issued together with Circular No. 78/1998/TT-BTC of June 9, 1998 of the Ministry of Finance)

1. The compulsory reinsurance rates

The compulsory reinsurance rates shall be set equal to 20% of the value of the original insurance policies or applications

2. List of operations subject to compulsory reinsurance and the compulsory reinsurance commission rates:

a/ For fixed reinsurance contracts:

The operations The compulsory

subject to compulsory reinsurance

reinsurance commission rates (%)

- Land, sea, river, railway

and air transport

insurance 22

- Hull and shipowners'

civil liability insurance 22

- Fire insurance 25

- Property and casualty

insurance:

+ Technical insurance

(construction and/or

installation insurance) 26

+ Petroleum insurance 15

+ Other types of insurance

for foreign investment

projects 24

- Aviation insurance 85% of the reinsurance commission rate applicable to the same type of service on the

international market.

b/ For temporary reinsurance contracts: The compulsory reinsurance commission rates shall be equal to 85% of the reinsurance commission rates applicable to the same type of services on the international market.

For the Minister of Finance

Vice Minister

TRAN VAN TA